Case Study: Kraft’s Hostile Acquisition of Cadbury’s

Cadburys, a British global producer of confectionary was bought out by the American Kraft in January 2010. Prior to the merger Cadburys was listed on the London Stock Exchange under the FTSE 100 Index. It was originally founded in 1824 in Bourneville. Its products include Flake, Dairy Milk and Milk Trays and the firm employed 45,000 people in 60 countries.

Kraft is the world’s second largest food company after Nestle, with revenues of £25.6 billion (2008) employing 98,000 people. They produce Dairylea, Milka, Philadelphia and Oreos.

The hostile takeover was first announced on 7th September when Irene Rosenfeld announced a 745p per share offer for Cadburys valuing it at £10.2 billion. The bid was rejected by the Cadburys board and branded ‘derisory’. On 18th November both Ferrero and Hershey said they were looking to make an offer for Cadburys (the chief-executive of Cadburys had stated he would rather be bought-out by either of these firms rather than by Kraft). By the 19th January Cadburys shareholders had agreed to a revise takeover by Kraft, after Ferrero and Hershey pulled out, worth £11.5 billion. £7 billion of this was borrowed to finance the deal (RBS, 75% owned by the UK Government, helped finance the deal) with Warren Buffet (a shareholder in Kraft) warning Kraft not to finance the deal through a rights issue.

After the purchase Kraft announced a 24% fall in net profits in the last quarter of 2010. This was due to the cost of integrating the 2 firms and due to a fall in like-for-like sales in both Cadburys and Kraft. After the deal Warren Buffet branded the deal ‘dumb’ and diluted his share from 9% to 6%.
Kraft also closed down a factory in Keynsham which they had promised to keep open, resulting in the loss of 400 jobs. The takeover was very controversial in the UK with many politicians and unionists criticising the deal, fearing it would lead to a loss of jobs and have a negative impact on the British economy.

It is hard to tell the long-term benefits to Kraft of the merger, but it is likely to be able to streamline the business and close factories and make efficiency savings. It was reported that many jobs at the HQ in Uxbridge would go as the administrative jobs would be integrated into Kraft. However the deal is likely to give Kraft access to the lucrative Indian market which it previously hadn’t had access to.